Trump’s Tariffs on India — real threat or hype? Top brokerages decode impact on sectors & economy

The first day of trade following the announcement of retaliatory tariffs by Donald Trump has come to a close for Asian markets, and India has emerged as a bright spot amid a deeper bloodbath seen in other regional peers.

While on one hand Japan’s Nikkei dipped 2.8%, South Korea’s Kospi lost 1.1% and Hong Kong’s Heng Seng shed 1.7%, on the other Dalal Street emerged relatively better with a mere 0.40% fall in headline indices, signaling that the country might be better placed than previously thought to weather the 26% tariff imposed on India.

Is Trump’s tariff impact on India limited?

Analysts say while the headline number of 26% might appear massive, it comes as a relief because of no incremental impact on large exporting sectors like IT services, pharma and autos. The quantum of tariff on India also seems smaller compared to what the US has imposed on other exporting countries like China (54%), Cambodia (49%) and Vietnam (46%).

“Reciprocal tariff announcements come across as a relief, as no incremental adverse impact on large exporting sectors like IT services, Pharma and Autos. Also, the 27% tariff on India is looking reasonable from a relative perspective,” according to analysts at Jefferies.

The Trump administration has exempted any additional tariffs on India’s pharmaceutical industry for now, driving a rally in the companies belonging to the sector.

“At the first glance, the 26% tariffs imposed on India seem rather high, higher than what India levies on most US items. However, two of India’s high-ticket exports — IT services and Pharmaceuticals, are untouched by this announcement. India seems protected from a competitive point of view, as tariffs on several South Asian economies that compete with India on these items are even higher,” said analysts at Bernstein.

If at all, India can gain from China’s loss, which by some measures now stares at 54% tariff, it added.

Bernstein further believes that India will be able to safely navigate through the tariff challenges and is more likely to engage with US through negotiations rather than heating up the trade war. While it sees an immediate negative sentiment in the markets, it still retains second half macro recovery thesis, and view a potential trade agreement with US as a positive long term development.

India’s goods trade surplus with the US was $46 billion in 2024, accounting for 1.2% of GDP, with the US being India’s top goods exports destination, commanding an 18% share.

Which sectors will bear biggest brunt of Trump tariffs?

Most analysts see IT services to be the biggest casualty of Trump’s tariff war. This impact will not come directly from tariffs imposed on India but rather from a slowdown in the form of US discretionary spending as a result of these measures.

Bigger worries are on a weaker US economic outlook, which is a negative for IT services and other exporters, said Jefferies. It sees demand from Manufacturing/Logistics and Retail verticals getting impacted due to higher tariffs, while demand from verticals such as Healthcare, Hitech, Utilities and Communications will be less impacted, it said. HCL Tech and Tech Mahindra from the large-cap space and IKS and Sagility from the mid-cap space are its top picks.

Bernstein downgraded the IT to equal weight as it sees US recession risk rising in the wake of these measures. “The big loss will eventually come in the form of US discretionary spending, which can have medium term consequences for the economy if the tariff war heats up. This eventually may lead to some impact for IT firms,” it said while commenting on the impact of tariff measures. Additionally, it upgraded healthcare to equal-weight amid limited impact on the sector.

According to Nomura, too, Indian IT services will be among the most vulnerable in near term on latest tariff measures amid concerns of US slowdown. The impact was visible as Nifty IT index tumbled 4% today, becoming the worst-performing sector.

Commenting on the impact on other sectors, Bernstein said, “The tariffs do, however, impact other sectors from auto components to apparel, but even there, India’s other competitors like Thailand, Vietnam or Bangladesh (for apparel) are taxed even higher. It is worth noting that a major auto exporter — Mexico, had previously seen a 25% tariff announcement. Products like jewelry and electronics are unlikely to move the needle much, and we believe the electronics assembly trend can continue with sufficient domestic demand.”

Jefferies sees a negative impact on solar, chemicals, and textiles, while it recommends buying pharma stocks on dips.

Trump tariffs can still hurt India’s GDP

While Trump’s tariff impact is limited, it is not absent.

“We see downside risks to growth both from the direct and indirect channels. While the tariffs exceed our estimates for India, on a relative basis, these are at par/lower than other key competing economies,” said Morgan Stanley. It sees a downside risk of 30-60 bps to growth estimate of 6.5% for F26e.

HSBC said the hefty 26% reciprocal tariff, arithmetically, may shave off up to 50 bps from India’s GDP growth this year. However, given that pharmaceuticals, a key Indian export to the US, were largely exempted from the reciprocal tariff, the impact could have been larger, it added.

India is currently in the process of negotiating its first tranche of an eventual FTA with the US and can offer concessions such as purchasing more US oil and defense goods (at the expense of Russia), as well as lowering tariffs on agricultural products and electric vehicles, it said. On a positive side, it sees trade risks providing the catalyst for India’s much-needed reforms, including slashing tariffs, hastening trade agreements, opening up to regional FDI, and making the rupee more market-determined.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.